Turning pennies into profit

OKLAHOMA CITY (AP) -- While every company's bottom line deals with fine-tuning its cash flow, Coinstar is literally counting pennies for its profit. And the company is counting on Oklahomans to help.

Coinstar has entered the Oklahoma market with its coin-counting kiosks, installing more than 40 ATM-size machines at Albertson's and Homeland grocery stores in Oklahoma City, Norman, Edmond, Enid, Moore, Stillwater, Yukon, Chickasha, Guthrie, Mustang, Seminole, Bethany and Pauls Valley. The expansion follows its success in the Dallas/Forth Worth area, a company spokeswoman said.

Coinstar develops, owns and operates a network of automated, self-service coin counting and processing machines that provide consumers with a convenient means of converting loose coins into bills. Customers bring in large amounts of loose change, dump the coins into the machine and are given a receipt for the sum -- less a service fee -- redeemable at the store's cashier.

The service fee is what keeps Coinstar afloat. How much is loose change worth? Nearly 9 cents on the dollar. Coinstar charges the customer 8.9 percent of the coins it counts.

Homeland spokeswoman Debbie Brown said the store gets 1 percent of the transactions.

"It's really just a good customer service; we're not going to get rich off it," Brown said. "And it's a fun program, to hear the coins being counted. People are intrigued by the sound of money."

The stores also benefit from on-screen advertising space, noticeable to their customers as they wait for a final tally.

Coinstar spokeswoman Jessica Cincotta also said stores in other markets have seen an influx of new customers looking for the coin machines, who end up spending their money in the store.

What happens, though, if a store customer with a pocketful of silver goes to a cashier instead of the machine first? -- "It depends on how much change the customer has," Brown said. "It's up to the customer and the cashier."

Brown said she has been surprised at how willing people are to pay the fee.

"So many people do branch banking and use ATMs, and it can be a big hassle unless you bank there," she said.

Cincotta said the machines can count 600 coins a minute. And that alone, she said, is worth the fee. Coinstar estimates a typical consumer handles about $600 in coins per year.

So Coinstar's business relies largely on a customer's conviction that loose change is valuable and worth the trouble. Ironically, that same perspective actually hurt Coinstar last year.

In advance of a disappointing third-quarter report in 1999, Coinstar's Chief Executive Jens Molbak pointed to a national coin shortage in July and August, as well as the Treasury Department's introduction of new state quarters and subsequent consumer hoarding, which kept a lot of change from being dropped in Coinstar kiosks.

The Bellevue, Wash.-based company is traded on Nasdaq under the symbol CSTR. For the quarter ended June 30, revenue rose to $24.7 million from $18.3 million in the same period a year earlier, while gross profits rose to $6.5 million from $4.5 million. However, diluted earnings per share showed a 27 cent loss, compared with a 26 cent loss for the same quarter in 1999. Earnings before interest, taxes, depreciation and amortization was $2.2 million for the quarter this year, compared with $3.3 million a year ago.